MSMEs have become a very important part of the economy and they are quickly outgrowing the status of small and medium enterprises. The Government has played a strong role in steering them towards success and has helped the businesses get off ground with the right offerings and initiatives. The Government initiatives have helped them build a strong and bright identity for themselves but there is still a long way to go.
MSME is still learning how loans and credit can help them reach their potential. MSMEs are in need of cheaper and carefully guided access to funds to grow their business. Here are the top three steps that MSMEs should take in order to be loan-ready.
Always make a payment on time
The relationship of a lender-borrower is an important one because lenders consider your ability to make timely repayment before approving a loan application. Your borrowing capacity will be reported to the credit ranking agency by your lender. It is a crucial factor in determining the CIBIL rank. An MSME should focus on making timely payments to the lenders and avoid any late payment or default in the payment. These timely payments will help build a strong credit score and the next time you apply for a loan, you will enjoy a quick approval of the same.
Access your needs and apply for credit carefully
MSMEs need to plan their strategies and look at applying for credit from the formal lending landscape. Do not resort to alternative lending sources and look for the right lender for your needs. Since you are eligible for a loan, it does not mean that you need to apply for one. You need to carefully access the needs and then make an application. Some loans may also attract a high-interest rate and it could put you into a debt trap. Apply for MSME loan only when you need it, and only as much as you need it. This will keep you out of the debt trap and will make it easier for you to repay the loan. It will also help allocate the funds in the right direction.
- Check the company credit report from time to time
Your credit score is a very important number and it reflects your ability to make the repayment on time. You need to check the CIBIL score and monitor the rank regularly. If you notice any errors or inaccuracies, you need to inform them about the same. The higher your rank, the better are your chances of loan approval. Whether you apply for a loan in your individual capacity or apply as an MSME, the credit score will make a lot of difference. Many lenders also offer the loan at a discounted interest rate if you have a high credit score. This is why you need to monitor the rank from time to time and be ready to leverage the offers when there is an opportunity.
An MSME can leverage their access to credit to reach their potential, right away. MSMEs need to work towards growing their business loan eligibility and credit health with a strong credit rating. This can be achieved through timely payment of dues and making no default.